What are we looking for?
The stock sell-off that tore through world markets in January has many investors thinking about where to best protect their capital in the coming year. A previous article described Canadian opportunities in the defensive sectors of utilities, pipelines and telecom services. In the U.S. market, there are further choices, particularly in the consumer-staples sector – a traditionally defensive area.
The screen
We will be using Recognia Strategy Builder to search for U.S. consumer-staple-sector stocks that have strong earnings growth and dividends, and have shown a resistance to the current downtrend.
We begin by setting a minimum market capitalization threshold of $10-billion (U.S.) to focus on larger, more established companies in the sector.
Next, we will look for companies which have a dividend of at least 2.5 per cent so that we are paid while we wait for our investments to appreciate. We will also select companies that have the potential to grow their earnings over the next five years by at least 4 per cent a year based on analyst estimates.
Finally, in order to focus on stocks whose price has demonstrated an ability to resist the current downtrend, we will select only stocks with positive stock price performances in the past four weeks.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Consumer sector stalwart Procter & Gamble is a value investing darling for good reason. Its stock rose 4.2 per cent over the past four weeks while the broader market declined by roughly the same amount. In addition to above-average safety, the stock provides a 3.3-per-cent dividend yield and 6.6-per-cent projected EPS growth rate.
Paper-products maker Kimberly-Clark makes our list with a 2.7-per-cent dividend yield and four-week price gain of 1 per cent. The stock had a very strong 2015, setting a new record high on Dec. 30.
Atlanta-based Coca-Cola is a classic value stock with a strong dividend and stable earnings. Coke has a current dividend yield of 3.1 per cent and a 4.4-per-cent annual projected EPS growth rate. Known for almost a century as a defensive stock, Coca-Cola should provide investors with some security in a volatile market.
Historical performance
Recognia Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 12.7-per-cent annualized return compared with 5.9 per cent for the Dow Jones industrial average and 7.6 per cent for the S&P 500.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.